Disparate treatment of working families compared to wealthy in proposed tax plans

Lawmakers are considering various tax plans that would either convert North Carolina’s personal income tax to a flat rate or phase it out altogether, while making the state more reliant on the sales tax. The result would be a tax shift on the majority[1] of North Carolinians, hitting especially hard those at the bottom of the income ladder.

Legislation already inked into law this session signals that moderate- and low-income working families are not at the top of lawmakers’ list of priorities. In mid-March, the Governor signed a bill to axe North Carolina’s Earned Income Tax Credit (EITC). Unless lawmakers reverse course, nearly 907,000 working families—most of them with children to support—will face a tax increase beginning in tax year 2014. This tax credit is for families that work[2] but earn low wages, and helps them keep more of what they earn so that they can stay in the workforce, support their children, and avoid poverty and public assistance.

This decision came on the heels of other legislative choices that will leave many North Carolina families in dire straits. For example, in February, lawmakers drastically reduced[3] the benefits newly unemployed workers will receive by more than half and imposed even deeper cuts after that. Lawmakers also refused to expand the state’s Medicaid program, leaving an estimated 500,000[4] low-income North Carolinians without access to affordable health coverage and rejecting millions of dollars in federal funding.

The tax shifts on working families coincide with efforts to end the estate tax, cut income taxes for the wealthy and profitable corporations, and preserve an ineffective tax break for profitable businesses. Proponents claim that this approach will produce more economic growth, but decades of economic research and the experience of other states[5] show that this outcome is unlikely.

This chart[1] highlights the disparate treatment of working families compared to the wealthy and businesses in lawmakers’ tax plans. Lawmakers in the majority party have talked a lot about the need to re-brand North Carolina’s image. Yet, a tax shift on working families is neither a winning brand for North Carolina nor true tax reform.